St. Peter doubles down on Bernanke

St. Peter is heaven´s “weather controller”. But he must be angry at our policymakers because he “blew” a drought that dragged down spring RGDP, which was revised down in this third and final estimate.

The Fed remains quite unhelpful, different from what went on after other recessions. The charts show year on year growth of both nominal spending (NGDP) and real output (RGDP) during the first 12 quarters of expansions.

Remember that the 1981-82 recession was deep, justifying the large rebound in nominal spending that drove RGDP forward.

The 2001 recession was, on the other hand, very short and shallow, but even so the Fed was stingy and took it´s time in promoting an increase in nominal spending. The effects were seen in the protracted recovery in employment (the ‘jobless recovery’).

In the present case the Fed has been outright miserly and nominal spending – which fell markedly in 2008-09 – is growing at an even lower pace than before the crisis hit, with the first quarter of “expansion” registering a significant fall. In other words, the “hole” is not being “filled” and in that case employment opportunities remain scarce.

And for those who think a higher growth in nominal spending is a harbinger of “running out of control” inflation, below the corresponding charts.